Tuesday, January 29 10:58:31
Irish start-ups are heavily dependent on informal investment from family, friends and colleagues, according to a new quarterly analysis of indigenous entrepreneurial activity in Ireland, launched today at DCU Ryan Academy.
It said that this source of funding in Ireland is lower than in the US and many other European companies.
The report, entitled Entrepreneur Watch: Informal Venture Capital - Business Angels and Family and Friend Investors, illustrates the extent to which informal investors play a vital role in the development of new businesses in Ireland.
Key findings of the report, co-authored by Professor Colm O'Gorman and Vanessa Diaz of DCU Business School, include the finding that informal venture capital funds in Ireland exceed formal venture capital funds by a ratio of 5:1.
Informal investors invested approximately E275 million in new business during 2011 and approximately 28 000 Family, Friends and Colleagues provided at least E195 million in informal funds in 2011.
Around 3 000 Business Angels invested E80 million in 2011.
Informal investment activity is lower in Ireland than it is in the US and in many other European countries and at least one in five informal investors has prior experience of starting a business.
Speaking at the launch of the report, DCU Ryan Academy CEO, Ann Horan said that the publication of Entrepreneur Watch is particularly timely as it highlights the challenges facing young start-ups throughout the country in terms of accessing capital investment.
"Despite a relatively high level of informal investment compared to more formal venture capital funds, international studies have estimated that this 'love money' and 'smart money' are just not meeting the needs of new business in Ireland. To turn around the Irish economy, it is vital that government policies and enterprise bodies continue to support indigenous business in this challenging start-up phase and provide them with every assistance in accessing support, advice and funding at key junctures in their business development."
Co-author, Professor Colm O'Gorman said informal investors play a vital role in the development of new businesses, yet there is relatively little published material relating to informal investors in Ireland.
"This report highlights that the majority of informal investors in Ireland provide relatively small amounts of money to businesses started by a family member, a friend or a colleague. However, given the number of informal investors, the total amount of informal venture capital funds is high (E195 million from Family Friends and Work Colleagues and E80 million from Business Angels). This means that informal venture capital funds exceed formal venture capital funds. For every E1 of formal venture capital funding, there is approximately E5 of informal capital funds. However, the rate of investment in Ireland is lower than it is in many European countries and is lower than the rate in the US."